Fed's Waller proposes 18-month rolling dot plot in communication shift

Federal Reserve Governor Christopher Waller proposed replacing the central bank's quarterly dot plot with an 18-month rolling cycle, a communication overhaul that could reduce the cliff-effect of fixed-horizon projections as the Fed navigates a 3.50-3.75% rate with inflation at 4.1%.

"Moving to a calendar-based, rolling dot plot would provide a more continuous view of participants' rate expectations rather than the current snapshot approach," Waller said, according to remarks prepared for a conference. The governor suggested the projections be released a day after FOMC meetings rather than on the same day.

The proposal comes as the Fed holds rates at 3.50-3.75% for a fourth consecutive meeting under new Chair Kevin Warsh, who declined to submit his own dot plot projection at the June gathering. Nine of 18 officials now pencil in at least one 25-basis-point hike in 2026, lifting the median year-end rate forecast to 3.8% from 3.4% in March and reversing the cut previously expected. The policy statement was shortened to roughly 130 words from 341 in April, removing language that indicated a bias toward future cuts.

The shift to a rolling format could reduce the "cliff effect" of the current quarterly dot plot, where a single median projection shift can trigger outsized market moves. Under the proposed 18-month cycle, projections would update more frequently and smoothly, potentially dampening the volatility spikes that have followed past dot plot releases. The CME FedWatch Tool now prices the next move as a hike rather than a cut, with another hold expected at the July meeting.

The current dot plot format, published quarterly with projections extending through the current year and two forward years, has been criticized for creating artificial focal points that amplify market reactions. The last time a single dot plot revision triggered a significant market swing was in September 2023, when the median projection for 2024 was revised up by 50 basis points, sending the two-year yield up 15 basis points in a single session.

Waller's proposal would align the Fed's communication with a broader trend among major central banks toward more flexible forward guidance. The European Central Bank abandoned its forward guidance on rates in 2022, while the Bank of Japan has moved toward data-dependent communication under Governor Kazuo Ueda. The 18-month rolling format would give the Fed a middle ground — more dynamic than the current quarterly system but more structured than purely qualitative guidance.

Market implications of a rolling dot plot

For bond markets, the change could reduce the binary risk around FOMC meeting days. The two-year Treasury yield has moved an average of 11 basis points on dot plot release days since 2020, according to data compiled by Bloomberg. A rolling format with more frequent updates would spread that information flow across multiple sessions, potentially reducing single-day volatility. The dollar could also see less pronounced swings around FOMC decisions, as the market would have a more continuous view of the rate path.

The proposal faces an uncertain timeline. Any change to the dot plot format would require approval from the full Federal Open Market Committee, and Warsh has signaled skepticism of forward guidance more broadly. The next FOMC meeting is scheduled for July 28-29, with markets pricing a 68% probability of a hold at the current 3.50-3.75% level.

This article is for informational purposes only and does not constitute investment advice.